Wednesday, August 31, 2011

There you have it, the difference between ruin porn (bitter) and Rust Belt art (bittersweet). Sugar. I encourage you to read this Huffington Post from Randy Fox, one of the creators of American Elegy. I'm adding the blog to my reader. Great stuff.

Tuesday, August 30, 2011

But I reckon I got to light out for the territory ahead of the rest, because Aunt Sally she's going to adopt me and sivilize me, and I can't stand it. - Mark Twain, "The Adventures of Huckleberry Finn"

That sentence is burned into my mind as emblematic of the American frontier literary tradition. Our culture can be distilled down to the move to improve. How the geography of the American frontier changes over time is one of my major preoccupations. Where is the "territory" today?

Buzzell returns this month with Lost in America: A Dead End Journey, an account of his cross-country voyage in a problematic 1965 Mercury Comet. Although the book began as an effort to retrace Jack Kerouac's trip from On the Road, Buzzell flipped the assignment on its head by driving from the West Coast into America's midsection.

We talked to Buzzell about his new book, the role of music in his writing, and how he found hope for America's recovery in unexpected places - namely, Detroit.

Music seems to be a pretty big part of your writing.

My first book was like Black Flag, like a punk record. I never went to college and I never studied to be a writer, so it's kind of like these punk musicians who played by ear, where it's so bad it might sound good.

[Lost in America] is more like my post-punk record, like the Faith album by The Cure. It's kind of a dark picture of America with all the stuff going on in the economy and in my life.

You mention music in My War a lot, but in the new book there's no soundtrack for your trip. You're driving around America in a car and you've got nothing, not even a tape deck.

I just wanted to be alone with my thoughts. I would play music in my head, as weird as that sounds. When I went to Detroit, the first song that came to mind was Slayer, the lyrics to [South of Heaven], "Before you see the light you must die."

I interpret "before you see the light you must die" as a contemporary version of "I reckon I got to light out for the territory". To me that's Rust Belt literature, On the Road in reverse.

The steel collapse decimated Pittsburgh and its region, taking with it nearly 1 out of every 10 jobs there. Entire towns surrounding the city became obsolete. But it is because of that failure, that absolute bottoming-out, that Pittsburgh has been able to cast aside its past and emerge as a unique showcase of what a small, bustling, connected American city can eventually become. The example of Pittsburgh is to fail on the failures and invest in the attributes- granted, of which the 'Burgh had many, in its beautiful architecture, old establishment money, intact communities and ethnic organizations, and cultural trusts and universities- that a place already has. It is a tale not so much for cities facing similar problems to the Pittsburgh of 30 years past, as it is for the country as a whole in this stage of national transmogrification.

Pittsburgh's transmogrification is now a meme. Detroit wants to follow in the Steel City's footsteps and embrace its core identity. You don't want to be the next Silicon Valley or Austin. That's the geography of yesterday's frontier.

There's also the creeping inferiority complex that runs through Chicago. Chicagoans are often a little too eager to defend their city against New York or Los Angeles. Stop it, Chicago! You're trying too hard. Just do you, girl. Just do you. (Look to Pittsburgh for a lesson on how to do this beautifully.)

On Sunday, the New York Times Magazine featured a lengthy piece on the Obama Administration investment in advanced battery manufacturing. At Market Urbanism, Stephen Smith berates the policy as “sprawl-promoting”:

I’m not going to lay out a long case against electric cars right now, but suffice it to say I think they’re just another subsidy to the auto-based system, and that the true environmental harm in cars is not their actual emissions, but the land use patterns than they necessitate, and an electric battery doesn’t change this one bit.

I’ll buy his main lament—the Administration, and local governments, desperately needs to focus on land use policy. Development regulations, for instance, can often do plenty more for job creation than rehabilitating the manufacturing sector. Relieving zoning restrictions does wonders for growth, which can then foster jobs, stabilize housing prices and combat sprawl.

From a job creation standpoint, there is a gaping hole in the invest-in-manufacturing strategy gaining traction in the Rust Belt. It's traditional thinking misplaced in a new global economy, a la population growth equals economic growth. The Industrial Era lives on. There is no acknowledgement of having to do more with less labor.

Replace "population" with "density" and a different economic calculus emerges. Education isn't the only way to improve human capital. The sprawl subsidy undermines economic development and wastes regional talent. It discourages density.

Favoring advanced battery manufacturing is anti-innovation. But funding entrepreneurial networks yields no ribbon cutting and the job growth takes much longer. So, we opt for the former. Promoting innovation is a tough sell (e.g. encouraging more geographic mobility). The industrial way of thinking is familiar, comfortable. The Rust Belt ethos: We make things.

That ethos begets suburbia, the endgame of industrialization. Cleveland. Drive your battery-powered car there and see what the sprawl subsidy will get you.

Saturday, August 27, 2011

Charlotte, N.C., has a success story in Red Ventures, an Internet marketing firm that will add 500 jobs by year's end. But the firm's growth is overshadowed by the downsizing in Charlotte's signature industry, banking.

Home to Bank of America, the city suffered when the housing collapse rippled through the financial sector. Some 4,000 banking jobs have disappeared since 2007, and the story isn't over: Bank of America just announced 3,500 more layoffs, although it didn't say where they'll occur.

Bottom line: Charlotte unemployment is pinned at 11.2 percent.

<------------------End Update------------------>

Pittsburgh is up and Charlotte is down. That's a reversal of this trend:

The Nielsen Co. released its list of television market ranks for 2011, and Pittsburgh will fall from No. 23 to No. 24 next year. That's not surprising because of the market that surpassed Pittsburgh: Charlotte, N.C., a city growing faster than Pittsburgh.

Year to year, the number of television households in Pittsburgh grew from 1,154,950 to 1,160,820, an increase of 5,870 homes. Charlotte grew by 18,270 homes to surpass Pittsburgh.

Pittsburgh's declining market rank has been under way for decades. In 1998, Pittsburgh was market No. 19. By 2008, Pittsburgh had fallen to No. 23.

I don't know much about the Nielsen data. Take the trend to the bank (i.e. declining for decades) and keep in mind that Charlotte's shrinking household numbers are mostly to blame. Two regional economies are going in different directions, but not the way anyone would expect.

Pittsburgh is still struggling to get out from under the collapse of steel. And if you aren't surprised by Pittsburgh topping some metro ranking, then you likely think the praises are a fluke. Take away eds & meds, Shittsburgh is back. With praise like this, who needs detractors?

We well understand why the Boston Metroversity is first with 230,000 students and 35 colleges and universities. Many of those schools have altered the landscape and enlivened the creative economy. The Colleges of the Fenway (Emmanuel, Wheelock, Simmons, Wentworth Institute of Technology, Mass College of Art and Design, and Massachusetts College of Pharmacy and Health Services) have invigorated Huntington Avenue. Emerson College and Suffolk University have done the same for the downtown.

In Raleigh the great research triangle of North Carolina State, UNC-Chapel Hill and Duke dominates. But the Pittsburgh Metroversity, ninth? It is powered by 120,000 students led by Carnegie-Mellon, Duquesne and by itself the University of Pittsburgh with its Medical Center that now employs 83,800 people and spends more than $2 billion in the community annually.

Without that, Pittsburgh would be hemorrhaging economically as would Cleveland without Case-Western or Richmond without Virginia Commonwealth. And the world is now turning to the “industry” of higher education/allied health.

I doubt the author intended a backhanded compliment. The point of the article is that higher education is an important driver of regional economic development. But the rhetoric does assume the reader would be surprised at such a high ranking for Pittsburgh.

Regional planners eager to replicate the job growth of areas such as Silicon Valley or North Carolina’s Research Triangle Park use them as examples of government-sponsored clusters that worked. While it’s true that World War II investments in defense-related research at Stanford planted the seeds for Silicon Valley’s semiconductor industry, that forest burned down long ago. The Valley has reinvented itself many times since then. Meanwhile, Research Triangle Park achieved its success decades ago but, in my opinion, has lost momentum in the Internet era.

Friday, August 26, 2011

There is still a fair amount of wishful thinking going on in the Sun Belt. The good times may eventually return (they always do). Missing is consideration of the seismic impact of the financial crisis. A lot has changed, particularly migration:

The figures come from the Internal Revenue Service, which compares where households file their tax returns from one year to the next. UNO's Center for Public Affairs Research has been analyzing the annual data since 1989.

Nebraska had lost a net of residents to the Sun Belt states of Arizona, Florida and Georgia in all 20 years of previous data — and in all likelihood that trend had been ongoing for many years before that. Nebraska had lost residents to Nevada in 19 of those 20 years.

But that was reversed in 2009, with Nebraska gaining 213 residents from Arizona, 305 from Florida, 138 from Georgia and 95 from Nevada.

The stubbornness of the economic doldrums is cause for panic in Arizona, Florida, Georgia, and Nevada. The changing flow is sustained, new pathways set in concrete. Mesofacts will favor Omaha over Las Vegas.

During the boom years, this wasn’t such a problem, as these workers could find jobs in construction or the service industries. Indeed, Hispanics had the lowest unemployment rate in the United States before the recession.

All that’s finished. And, if you want to know why the Great Recession won’t truly end here in Southern Nevada for many years, this is it: The construction economy is dead and will be for years, the resorts have learned to do more with less, and we’re stuck with hundreds of thousands of workers who have few skills and no education.

They’re the equivalent of workers in Akron or Cleveland after steel went south and then overseas.

This is why we went from Boom Town to Neo-Rust Belt in just a few years. Consider the difference in earnings between those with education and those without: In 2009, for adults 25 to 34, the median worker with a bachelor’s degree made $45,000, or more than twice the median of someone without a high school degree.

The Rust Belt parallel is apt. Decline is slow, taking decades. There will be enough of a shrinking pie to maintain the status quo. The migrants won't come back for a generation or two. The jobs are in Nebraska.

LISA RAKOCZY arrived in north London in the mid-2000s from Krakow to study English, hoping to support herself by working as a cleaner. All went well—until the crash and ensuing economic crisis hit her previously prosperous clients. Competition for jobs became fiercer as middle-class families started to spend less on household help. For a while, she eked out enough to pay for her language course by cleaning lavatories in railway stations. Later, her sister, a teacher in Poland, helped her to make ends meet. But by the end of last year, Ms Rakoczy had tired of the trials of an immigrant’s life and headed home.

A typical case, you might think. Indeed, in the wake of the crash, many immigrants have gone back. Just as predictably, many would-be emigrants have stayed at home, either because moving abroad no longer seems worth the effort or because immigration rules in many countries have become more restrictive.

Yet at the airport, Ms Rakoczy may have crossed a young Briton bound for Shanghai, a Chinese computer programmer moving to Canada or a Portuguese worker on his way to oil-rich Norway. The recession has not stopped all migration, but rather led to new patterns and different destinations. Never before—or at least not in recent history—has the map of global migration been at the same time so varied and so changeable.

This is the new normal. Holding up the last US Census misses the point. That was the economy of the previous epoch. Get ready to ride the next Kondratieff wave. There are a bunch of great beaches along the Missouri River.

According to Tony, Ohioans weren’t always so keen to remember their history. The term Rust Belt, which is now popular among younger residents, was once a term of distain for an area of the country (also including Pennsylvania, Michigan, Indiana, Illinois and parts of Michigan) whose rusting factories were a painful reminder of a lost way of life. Now, Tony says, young Ohio artists are continuing to make art that celebrates the Rust Belt of the future—a place of bountiful creative energy. When the City of Murals project was first started, the murals preserved a piece Steubenville’s past, now a new generation is trying to preserve them for the future.

For me, I had to leave the Rust Belt before gaining an appreciation of the culture. Being from Erie felt like being from nowhere, just another down-and-out town. The brain drain was real. Most of my relatives had moved to Charlotte, NC. I wasn't sure I had an identity, let alone a sense of pride.

All of that turned around in Pittsburgh, circa 1997. A young filmmaker was debuting a short at a hip coffee shop on the South Side. The scenes weaved together the same sense of nostalgia and melancholy afflicting me now that I was back in the Rust Belt. We shared a common understanding of the landscape. I belong here.

The future of the region belongs to expats and repats. We want to save the murals. We know how outsiders would value them. We understand the Rust Belt attraction in a way that those who stayed cannot. Rust Belt Chic is already hot in DIY Brooklyn:

The true unheralded urban gem of Pennsylvania, however, is Pittsburgh, a city that feels like what an American city should feel like. It's gritty and pretty and shitty and they put french fries on their sandwiches. Whether you're in the Strip or Squirrel Hill, Pittsburgh is a place to be cool.

Next up are Steubenville and Weirton, when Pittsburgh gets too popular to be authentic. Monessen? The Mon Valley is where sea serpents (and zombies) still roam. Greater Pittsburgh has an endless supply of Rust Belt Chic.

The Atlas allows users to create county-level maps showing the variation in key socioeconomic conditions across the United States. The first map, reproduced from the Atlas, depicts county-level unemployment, showing high rates in the Pacific Northwest, northern Michigan, and parts of the Southeast, compared with lower rates in the Great Plains and Intermountain West. Employment data in the Atlas show that many pockets of high unemployment also have large percentages of workers employed in manufacturing. ...

... The Atlas includes easy-to-use zoom and panning features; users may click on the scaling bar (upper left) for zooming or use a mouse to move around. The last map shows employment change since 2000 for South Carolina and vicinity, with nonmetro manufacturing counties highlighted. The concentration of employment loss over the past 10 years in counties dependent on manufacturing is clearly depicted.

Easy to use data visualizations are a blogger's best friend. On that note, I'll plug Aaron Renn's (The Urbanophile) Telestrian. I'm a subscriber and I can vouch for the product. I use it to analyze talent migration. Creating publishable quality maps is a snap and has saved me literally days of work time.

Back to the Rural Atlas, the legacy of manufacturing in nonmetro counties versus metro counties is a pattern worth discussing. Engineering economic transition in a nonmetro area would seem to pose unique challenges. If someone reading this is aware of studies that look into these issues, please let me know about them. I'd like to learn more about the rural (or semi-rural) Rust Belt.

Meredith Whitney, the CEO of Meredith Whitney Advisory Group, said the rise of other powers will provide the U.S. economy the spark it needs to reinvent itself. They will need an outside source of food to feed growing populations, she said.

"The U.S. has the opportunity to become the equivalent of the Saudi Arabia of food," said Whitney, an analyst who rose to prominence in 2007 by making what turned out to be a presciently bearish call on Citigroup shares.

Banks in recent decades had concentrated their growth on the East Coast and West Coast, overly exposing themselves to the collapse of the housing market in those areas, she said in our roundtable discussion. Banks that serve, say, the Midwest could have a leg up. "The growth will be in what I characterize as the emerging markets of the United States, which is the Rust Belt, the Green Belt, if you will."

The gourmet gob is the official food of Rust Belt Chic. This isn't the ironic appeal of a dive bar, more like dressing up a Mallo Cup as a high-end dessert. First, a little history:

Susan Kalcik, a folklorist and archivist with the Southwestern Pennsylvania Heritage Preservation Commission in Johnstown, said her research shows that the Gob’s origin can be traced back to medieval Germany.

"They were making a cake-like pastry with a filling," she said. "It probably was brought to America by various German groups like the Amish or German Brethren." ...

... Kalcik believes that the Gob became popular because it was easy to carry in a lunch bucket.

"Men went into the coal mines or steel mills and the little cake with the icing on the inside instead of on the outside served their purpose," she said. "I’m convinced that the name Gob is related to the coal mines. Lumps of coal refuse were called gob piles. These working people adapted the name to the dessert."

Mr. Gdula graduated from Penn State and had been making his living as a freelance writer while living on the East Coast. He wrote the book "The Warmest Room in the House: How the Kitchen Became the Heart of the Twentieth-Century American Home" published by Bloomsbury in 2007. But in 2008, he found himself in San Francisco and out of work. He was missing home, and missing gobs, and so he made some -- trying to cook up some solace -- in his and his partner's crappy kitchen.

Inspired by the blooming of the street food cart scene in the Mission District, he decided to take out a cooler full of gobs and try to sell them. Not just the old-school chocolate and vanilla with which he grew up, but also new-fangled, left-coast flavors such as Chocolate Fennel with Raspberry Absinthe.

Mr. Gdula does give a recipe for classic gobs, based on one from his father's church, with Crisco filling. But his gourmet gobs use a filling made from butter and cream cheese and are about 90 percent organic. His also are about half the size of the "smashed softball" size ones he remembers loving as a child. His sell for $3.

This gets me to thinking about cultural diffusion on the backs of Rust Belt refugees. I recall, fondly, sitting in on Peirce Lewis class at Penn State. He was talking excitedly about the export of the Pennsylvania barn. During my wayward decade, I developed an eye for spotting Pennsylvanian culture in the American landscape. I think this paved the way for my appreciation of Steelers Nation and the Burgh Diaspora. I had a sense of pride about who I was and where I came from thanks to Professor Lewis.

Wednesday, August 24, 2011

But I'd like to think Dorrance hoped for more for the community he loved. PNC Bank has thrived in Pittsburgh, by absorbing other banks, some of them deeply troubled, in Philadelphia and Washington, Baltimore and Cleveland. PNC is what CoreStates should have been: one of the nation's largest banks, solvent in crisis, profitable in almost all seasons, and a major hometown employer and patron of good causes. PNC is even building a 40-story skyscraper headquarters in Pittsburgh as Philadelphia suffers a commercial construction freeze (except hospitals). That should have been us.

If you want to needle civic leadership, then hold up the success of an urban rival. I've seen that gambit used in Cleveland on numerous occasions. Take compliment with grain of salt. But also recognize that Pittsburgh's strong recovery is more than eds & meds.

Tuesday, August 23, 2011

Michelle Bachmann is promising cheap gas and millions of energy jobs. The hyperbole is absurd and sheds light on similar claims coming from the Marcellus Shale Coalition (MSC) and PA politicians in the back pocket of industry. The latest from Bachmann:

“What Barack Obama has done is lock up America’s energy reserves,” she said. “We’re the No. 1 energy-resource-rich nation in the world. We have more oil in three Western states in the form of shale oil than all the oil in Saudi Arabia. That doesn’t include the Bakken oil field in North Dakota or the eastern Gulf region or the Atlantic or the Pacific or Anwar or the Arctic region.”

She said the United States could tap its oil and gas supply to provide Americans with a cheaper, stable alternative.

“Energy could be one of the most stable, accessible forms of resources for business in the United States,” she said. “And we would create millions of high-paying jobs instantly.”

Recruiters are already actively in touch with Poles working in oil towns across the world, in Houston; Aberdeen, Scotland; Calgary, Alberta; and in Norway to persuade them to move back to Poland, Mr. Kostecki says. Some have been away for 30 years.

Meanwhile, Polish natural-gas monopoly PGNiG SA, which for decades was the only game in town if one wanted to work in oil and gas extraction in Poland, now has a poaching problem.

"Geofizyka Torun, [a PGNiG subsidiary] took everyone who applied [this year]," says Piotr Kurnik, the coordinator of the AGH conference and a third-year student at AGH.

The company is looking for surveyors and project operators, as well as title negotiators, who get the owners of concessioned land to allow companies to conduct their seismic readings on their property, whether through a sale of the land, a lease or some other arrangement. While Poland's government owns the rights to all the minerals under Polish territory, it doesn't own the land itself. Dealing sometimes with thousands of individual landholders means title negotiation over an area to be explored or exploited often moves at a snail's pace.

Business is picking up, but Geofizyka Torun is facing increasing competition as rival companies set up shop in Poland, bringing their own equipment to do seismic testing and hiring young professionals, says Sylwia Kowalska, a human-resources director at the company. But Geofizyka Torun offers to pay for its employees' lodgings and provides them with English classes, she says.

"We're seeing employees who left coming back," Ms. Kowalska says. "They miss Poland." She estimates that in May the company hired at least 70% more people than a year ago.

Geofizyka Krakow, another PGNiG subsidiary, does subcontracting jobs all over the world and recruits oil and gas workers in many different countries, including Pakistan, Egypt and Canada. But one of its toughest tasks is hiring people in Poland itself, says Filip Rieger, Geofizyka Krakow's chief recruitment coordinator. Those conducting mining-related work need permits from the State Mining Authority to do so. These permits are awarded for different grades of expertise, depending on age, experience and education. "In Poland, the required permits limit the pool of applicants," Mr. Rieger says.

Energy workers are being reshuffled. The jobs are going to established hands, just like they have in Pennsylvania. Perhaps the talent shortage appears in Calgary. New graduates from American programs might have to go to Canada (or Poland) to find work. Of course, producing a "qualified labor force" takes time. Even if Bachmann could deliver millions of jobs instantly, she'd have to open up the border to foreign born talent.

Bachmann is reusing the drill-baby-drill political gambit because it works. It worked in Pennsylvania. It seems to be working in Poland. The boldness of the fib doesn't matter. Just make sure you use big numbers, the more outrageous the better. That's the MSC playbook.

While all the fancy car folk were burning up their AmEx Black cards in foggy Monterey, us regular folk jammed the verges and medians of America’s first paved street, Woodward Avenue in suburban Detroit for the 17th annual Woodward Dream Cruise. The world’s largest voluntary traffic jam draws an international crowd of a million people, looking to show off and admire what has to be the most diverse and eclectic collection of cars and car-nuts in all of automobiledom. Where else would you see a 30-foot cabin cruiser driving along on a self-propelled trailer? Or an International CXT pickup towing a 20-foot-high perfect scale replica of a Radio Flyer red wagon? Those two passed by too quickly to focus a camera on, but we’ve got highlights of the rest of the ephemera and ecclectica that plied state highway M1 on the third Saturday of August. ...

... RUST-BELT CHIC You could order a new Mercedes, Maserati, or BMW with extra-cost matte paint that comes with all sorts of warnings about car washes and waxing procedures, but the true cutting edge of finish is completely natural iron oxide. Detroit sits atop a giant network of salt mines, so maybe it’s fitting that this new trend is getting its start here, as illustrated by these two very professionally finished rods, each of which wears its Detroit patina with pride.

Emphasis added (as if the all-caps weren't enough). I search "Rust Belt Chic" weekly, sometimes daily. I'm surprised to see the term pop up at Motor Trend. I suspect that its usage is more prevalent than I realize. Like or not, Rust Belt-ness is a positive selling point.

Detroit is not Pebble Beach. Pittsburgh is not Portland. Indianapolis is not a Rust Belt city. The world is turned upside down. That's cool. The true cutting edge of finish is completely natural iron oxide.

Indianapolis used to be the quintessential Rust Belt city. Now it's at the center of a statewide boom in the life-sciences business.

Indianapolis is a city. Indianapolis is in the Rust Belt. That's the extent of the truthiness of the first sentence. Emerging from the post-industrial apocalypse as an economic star makes for better copy.

That same [report] on South Korea did suggest that certain relatively medium-term improvements might be sustainable; the numbers and proportions of immigrants and immigrant descended people necessary to sustain either the peak population of South Korea or the peak working-age population of South Korea seems possible. South Korea is more open to immigration than neighbouring Japan, at least, and the movement of people from Vietnam, China, and the Philippines associated with marriage-driven immigration could contain the seeds for a broader migratory movement. South Korea might come to emulate a Canada that is enacting something very much like those policies right now, you could say. For those policies to work, though, you need a labour force that is permeable to people of diverse backgrounds at every level.

Dealing with more immigration poses its own set of challenges. There is also the prospect of encouraging more births and sparking a baby boom. All the policies on the table are easier said than done. I think we are approaching the challenges with the wrong framework.

We are using an industrial mindset to deal with a knowledge economy. Population growth equals economic growth. In a knowledge economy, quality (e.g. educational attainment of workforce) trumps quantity. This is the way forward emerging from the ravaged Rust Belt. Even there, struggling cities are slow to catch on to the Pittsburgh Paradigm.

About 40 years ago, Scott Linde started his small company, Linde Corporation, in Honesdale, P-A, laying pipe. Linde got his first boost in 1972, when Hurricane Agnes hit northeastern Pennsylvania, destroying much of the area’s infrastructure. Then came the Clean Water Act. That meant more pipelines were needed to comply with new federal regulations on water quality. When the big box distribution warehouses like Home Depot moved in near Wilkes Barre, along routes 80, 81 and the Northeast Extension, they needed plumbing. Once again, Linde was at the right place, at the right time. Then, in 2007, just before the recession hit, Linde says he got a tip. Pay attention to something called the Marcellus Shale.

“Actually, one of the main reasons we got involved this early, within six months, is that two of my partners and good friends, we go fishing, and they live up there, and they said Scott, there’s something happening up there.”

These days, the towering Linde has actually doubled his business. Just last year, he says, his company laid 50 miles of pipes for the gas industry. Some pipes take the gas from the well to a major transmission line. Other pipe carry the hundreds of thousands of gallons of water needed to drill a well and extract the gas.

Sorting through all the hype surrounding the Marcellus Shale isn't easy. I stay focused on two facts while reading any article about the boom. First, the financial crisis didn't impede investment. I'm not sure the economic calamity affected the money at all. Policy uncertainty wasn't an issue, either. Second, the price of natural gas collapsed and has remained low. The dramatic increase in supply is real enough.

I'm sure that industry isn't going pick up and move somewhere else more tax friendly. As I've written many times, investors are pot-committed to Pennsylvania. Shale gas isn't here today, gone tomorrow. The game changing will only get more dramatic. I will end with the introduction to the StateImpact piece:

You’ve probably heard about job loss and budget cuts. So what kind of company can be building it’s headquarters with backlit marble-paneled walls from Turkey, Zebra tiled marble from Brazil with onyx trim, skylights, large windows looking out onto the Endless Mountains, an atrium with glass flooring, and marble window sills. And what kind of company is doing all of this, not in Pittsburgh, not in Philly, but, in an industrial park in Pittston? A company that lays pipe — for Pennsylvania’s natural gas rush.

As Edwards put it: "I'm into the old stuff. I want things to be absolutely authentic."

Being authentic isn't easy. Hardware, appliances and even furniture sizes have changed significantly in the last 60 years. But Retro Renovation, with its abundant and highly specific information on vintage décor, offers a practical resource for doing the impractical. Old advertisements for terrazzo shower floors, how-to tips for cleaning a Saarinen tulip table, where-to-buy guides for dead-stock plumbing fixtures — surfing the blog is like visiting a time-warp Home Depot.

Rust Belt cities are listed as places where you can find a lot of great stuff on the cheap. "Great stuff" means "authentic". I see the trend as a turning away from sterile Emerald Cities, urban environments with shallow roots in the local cultural geography. You could be anywhere.

Rust Belt Chic is retro renovation on a regional scale. For now, I imagine suppliers in Cleveland are being matched with buyers in boho LA. The trend will expose more people to the Rust Belt Chic aesthetic. Pittsburgh is cool for all the same reasons it has been uncool for decades.

In a national tech industry providing some positive job growth in an overall economy that still suffers from high unemployment, those three companies follow other recent dramatic office upsizings that include Google, which announced in January it was expanding its presence at Bakery Square to 113,980 square feet, and ZOLL Lifecor, among others.

Illustrating the region’s tech sector growth, the number of online technology job postings for August increased 36 percent this year over last year, according to data gathered by Dice, a career site for technology and engineering professionals.

These growth companies are having trouble finding space big enough to accommodate the new hires. But this is the Rust Belt, Pittsburgh. It can't possibly be true. The real estate market numbers, both commercial and residential, suggest otherwise.

Turning back to job density, Pittsburgh is among the most centralized for large employment centers (see Brookings report). Other Rust Belt cities (i.e. Chicago, St. Louis, and Detroit) are among the most decentralized. The pattern:

On the whole, the 33 older industrial metro areas in this study tend to exhibit higher-than-average levels of employment decentralization.

Pittsburgh is the exception, not the rule. The reason is partly physical geography. Legacy institutions such as Carnegie Mellon University are also important. The clincher is the current financial crisis and the apparent linkages with demographic change. The macroeconomic shift favors Pittsburgh, a region well versed in dealing with acute demographic challenges as well as limping along under fiscal duress.

The sustained density of jobs in the urban core is suited for a robust knowledge economy. Where the workers reside is irrelevant. That's not to say more people moving into the City of Pittsburgh doesn't matter. In fact, the job density could attract more people to live there. In my survey and interview of expatriates who moved back to Cleveland, many expressed frustration about living in or near downtown. The problem? Employment opportunities were out in the suburbs. The journey to work was difficult and time-consuming, particularly for those trying to do without an automobile.

Unlike Pittsburgh, Cleveland's urban core is struggling to find tenants for office space. I see this as a major liability for encouraging the brain drain to boomerang back home. Increasingly, it will be an issue for attracting any talent to the region. The resistance to relocating employment downtown is considerable. Executives live out in the suburbs and enjoy close proximity to work. Life is good. Why rock the boat?

I'd guess that things will get a lot worse before improving. Rust Belt cities should put more emphasis on job density in the urban core. That's priority #1. The proof is in Pittsburgh.

Thursday, August 18, 2011

Decreasing geographic mobility doesn't benefit labor. But it is a boon to ownership via suppressed wages. Traditionally, unionizing is how a captive labor pool gained leverage in negotiations. Greater geographic mobility has rendered most unions unnecessary. That doesn't mean captive labor is a thing of the past:

The students, from countries including China, Nigeria, Romania and Ukraine, came to the United States through a long-established State Department summer visa program that allows them to work for two months and then travel. They said they were expecting to practice their English, make some money and learn what life is like in the United States.

In a way, they did. About 400 foreign students were put to work lifting heavy boxes and packing Reese’s candies, Kit-Kats and Almond Joys on a fast-moving production line, many of them on a night shift. After paycheck deductions for fees associated with the program and for their rent, students said at a rally in front of the huge packing plant that many of them were not earning nearly enough to recover what they had spent in their home countries to obtain their visas.

Exploiting noncitizen labor is an old gambit. A recent development are secondary household wage earners (typically female and residing in transit isolated suburbs). More insidious are programs designed to encourage retention. Plugging the brain drain undermines earning power while increasing margin for local companies.

Ironically, reducing the outmigration of college graduates diminishes the return on investment in human capital. CEOs for Cities Talent Dividend prize is a good example of best intentions gone wrong. Metros who raise educational attainment via inmigration will be more prosperous than metros who see equal gains primarily through retention.

Governments, not just families, are supporting outbound Asian students. A recent British Council analysis of countries that have strong government scholarship programs for students at foreign universities included Thailand. Who knew? I didn’t.

Not only is brain drain encouraged, it is publicly funded. Retention is another form of protectionism, labor market autarky. Such approaches are inefficient, costly. Regions should be promoting geographic mobility, not trying to stifle it.

The eastern reaches of the Rust Belt (the part that doesn't count as Midwestern) are experiencing dramatic population gains. The growth is an inconvenient truth for those selling boomtown secrets to shrinking cities. You don't need Rick Parry to wave his magic jobs wand or buy into the latest boondoggle from Wendell Cox:

New research by demographers Wendell Cox and Joel Kotkin offers counterintuitive insight into why Americans pick up and move where they do. Policymakers beware. Regardless of what we say we believe when we vote for political candidates, we Americans vote with our feet as if we're conservatives: We prefer low taxes, light regulation, school choice and jobs created by a robust free market.

In the Lehigh Valley, change also came quickly. On Seventh Street in Allentown, Caribbean restaurants and storefront churches crowded out other businesses. In Reading, a city 50 miles southwest, the Census revealed that Hispanics now make up more than half the population.

Ten or 15 years ago, residents of the Lehigh Valley would rarely, if ever, hear Spanish on the street. The suddenness of that change frightened some blue-blooded, long-time city residents, and it certainly explains some of the white flight in all three cities. But as Smith, the immigration researcher, cautions, Hispanic assimilation is only mid-cycle. The majority of Hispanic families have only lived here for two generations, and a Pew study found that the median age of second-generation Hispanic immigrants is only 14 years old. In other words, the Lehigh Valley and places like it still hang in limbo between first-generation immigrants and their second-generation children, who socialized in American schools, learned the English language, and grew up on Disney and MTV.

But I wouldn't go so far as to proclaim that Rust Belt states are doing something right. The concentration of wealth in the core of alpha global cities is displacing the underclass. That population is spilling over into Schenectady and, I predict, will reach places such as Buffalo. Little to none of that flow has a thing to do with policy.

Wednesday, August 17, 2011

“We’re excited to expand our presence in Seattle,” said Bershad. “There’s a strong pipeline of talent in Washington and we now have more than 850 employees in our Seattle and Kirkland offices working on a variety of key products including Google Search, Chrome and Google Plus.”

Interestingly, the statement makes no mention of the new Bothell operation. However, with three facilities located throughout the region, the company could be able to draw on technology talent no matter where they live. That could become even more important after tolling takes effect on the 520 floating bridge, which connects Seattle to Bellevue, Kirkland and Redmond.

Scattering offices around the region to reduce the costs of commuting is a new one for me. Talk about reverse engineering transportation. Beats throwing millions at light rail.

The Sun Belt got fat off of decades of inmigration. The simple act of national demographic reshuffling fueled spectacular economic growth in states such as Texas. I call this boom a "migration economy" and the current financial crisis killed it.

There are a lot of ways of looking at the Texas miracle, and I don't think one can or should write off structural factors entirely, whether tax policy, regulatory burden, housing costs, or oil and gas. But the dynamic above is an example of a virtuous cycle of self-fulfilling expectations. People come because Texas is where the jobs are, and because people come Texas is where the jobs are. Firms anticipate that growth will continue, and they hire accordingly, which ensures that growth continues. And migration ensures steady, stabilising growth in labour-intensive government, education, and health jobs.

I emphasized the positive feedback loop that applies equally well to any Sun Belt boom state. More people justify more government. More government means more jobs. As long as the demographics hold up, the pyramid scheme works great. Should migration suffer and birth rates plummet, legacy costs are a bitch. That's the other shoe in the process of dropping in Florida.

There is a remarkable correlation between asset market bubbles that cause macroeconomic crisis and demographical changes. In Figures 1.1 and 1.2, I show Japan, the United States, Spain and Ireland as examples of countries affected by the financial crisis. In these countries, the formation of bubbles in asset markets seems to coincide with a growing inverse dependency ratio, which is the ratio of the working population to the non-working (dependent) population. Meanwhile, busts in asset markets seem to happen when the inverse dependency ratio declines noticeably.

As I posted yesterday, a large part of Texas is in demographic crisis. Those dying counties are the real test of Parry's policies. Fail.

But where are these jobs and how can workers prepare themselves to move into the rapidly expanding energy arena? WPXI-TV tackles these questions in a locally-produced special, “Fueling Jobs,” first airing Wednesday, Aug. 17 from 8 p.m. to 9 p.m. on WPXI.

There are links to "energy job facts", which is the usual propaganda from civic boosters. Talent shortage or PR spot? You decide.

It's not too often that you see a consultancy -- or expert staff augmentation firm for that matter -- open a new office in Pittsburgh, of all places. Even McKinsey, which has a long history of advising executive management at industrial companies, could not bring itself to dedicate an entire office to the city (the Cleveland/Pittsburgh office was run as a single group, at least back when I knew these sorts of things). Still some folks are moving into the 'burgh, despite the recent historical trend of the post-graduate talent drain away from the area. Like sourcing firm Denali, according to a recent announcement.

I was tempted to paste the entire post here, which is a must-read for the Burgh obsessed (who have a sense of humor about their hometown). The tenor is along the lines of dismay as to why Denali would open an office in Pittsburgh, some sort of relocation hell. Keep your eyes open for a growing subculture who can't stand locals followed by the proliferation of "NATIVE" bumper stickers or, "I Break for a Pittsburgh Left".

The state Republican Party on Tuesday evening called the remark offensive and incredibly stupid, and called on Sturla to apologize. However, Sturla was apparently citing testimony by Troy Community Hospital from May that says among its experiences with the influx of drilling crews is an increase in sexually transmitted diseases.

All the drama surrounding the Marcellus Shale is very entertaining. Sturla comes off as a xenophobe and a sexist. The GOP continues wear rose colored glasses when looking at the drilling. Sturla's rhetoric aside, he has a legitimate beef. The trouble in Carrizo Springs, Texas:

“The whole world is changing here. This little community was deader than hell, but now that we have all these people coming in, we’re changing, things are happening,” said Eloy Rodriguez, the Dimmit County code compliance officer.

A quiet community of 5,700 residents tucked away in the brush country about two hours southwest of San Antonio, Carrizo Springs was completely unprepared for the dramatic economic and social changes now buffeting it.

Much of it is welcome. But while the county tax base and sales tax revenue are both doubling, and there are oil field jobs aplenty, the flip side is seen in the $1,200 two-bedroom rental house that a year ago went for $250, causing some locals to be shoved out.

And, as everyone learned this summer, there can be an unsavory side to an oil boom.

Shock waves followed the news that out-of-town strip club operators wanted to bring their neon fleshpots to the county. Rumors followed that other forms of big city vice and wickedness already had arrived.

“The majority of citizens are offended and aghast that we now have to deal with this problem, when never before did we even consider it,” Pastor Pete Perez of the Grace of God Community Church said of the strip clubs.

The way the PA GOP tells it, the boom is all local jobs and royalties. Never mind that the numbers are grossly inflated, the employment impact limited, and much of the work is done by roustabouts who legally reside in other states. On top of all that, let's pretend there are no negative side effects.

At this point, that is all the pro-industry politicians can do: Lie. Along with the Marcellus Shale Coalition, they've painted themselves into a corner. They are stuck with a policy narrative appropriate for Candyland. They must deny what is obviously the case. It is a public relations disaster.

Bradenton, the spring training home of the Pittsburgh Pirates since 1969, will enter a “Two Cities” alliance with the Steel City tonight as the two communities cement their tourism and economic development relationship.

An official presentation, featuring proclamations from Pittsburgh Mayor Luke Ravenstahl and Bradenton Mayor Wayne Poston, will take place before tonight’s game between the Pirates and St. Louis Cardinals at PNC Park.

Spectators at the game will watch a travel video showcasing the beaches and many activities in Manatee County, including Anna Maria Island and Longboat Key.

A press release from the Bradenton Area Convention and Visitors Bureau said the two cities are “putting a domestic spin on the international ‘sister city’ concept.”

“It only makes sense that we take that relationship to the next level,” Poston said, “strengthening the ties the two cities have and adding new ways of thinking about how we can help each other strengthen our economies, our tourism opportunities and our Major League Baseball presence.”

Smart people will always leave your town. They are the most likely to leave and tend to be the least risk averse. The goal of my blog is to figure out how to generate a return on the investment in wayward human capital. A domestic sister cities program is one way, like having a branch campus in another country. The destination community is already benefiting from your graduates. Why turn your back on them?

I’ve read a lot of blog posts lately painting Texas as a low benefit, low Medicaid, not so great system of public education kind of state. Let’s take this picture and run with it. People are moving into the state, in fairly large numbers, and that suggests the state is doing something right (again, I’m not suggesting Perry has anything to do with this.)

Like Cowen, I assure you my post is not about Parry. I'm interested in the relationship between policy and migration. I question the suggestion that the numbers mean the state is doing something right. People are moving to parts of Texas "in fairly large numbers". Aaron Renn (The Urbanophile) succinctly makes the point:

As you can see, population growth in Texas has been largely a “Texas Triangle” phenomenon – i.e., the cities of Austin, Dallas-Ft. Worth, Houston, and San Antonio. Much of the rest of Texas – at quick glance 119 counties – actually lost population.

As Brookings would remind us, states aren't designed to enable metro economies. The dominant political geography hinders growth. Houston, Dallas, and Austin are likely thriving in spite of Parry. That's the unit of analysis problem with the vote with their feet meme.

Next up is conflating population with migration. I've written about weird demographics. Substantial inmigration can mask a dying county. Also, a shrinking city can experience a positive flow of people. Such sloppy accounting informs more bad policy than any politician would care to admit.

Finally, there are migration mesofacts. People go where they know. They follow the well-beaten path. A city remains an immigrant gateway long after the boom went bust. Unemployment is high but 1990s Portland is still cool. Migration can be a lagging indicator. The vote is on yesterday's policy (if that had any effect at all). Most battles against brain drain that I've cataloged are trying to fix something long since past.

Robert Creighton, 30, Texas, charged with driving under the influence of alcohol, was accepted into the ARD program and placed on probation for a term of 12 months. While on probation Creighton will be subject to supervision by the Bradford County Probation Department which supervision will include monitoring for drug or alcohol use. Additionally, Creighton must perform community service with the DUI Litter Brigade and attend a Victim Impact Panel and he will lose his driving privilege for 30 days. Officer Sean Flynn of the Sayre Police Department arrested Creighton for the offense following investigation of a traffic violation that occurred in Sayre Borough.

I could spend all afternoon trolling the Bradford County Court News for evidence of itinerant labor and the social impact on host communities. Think of all the tax dollars saved thanks to a more active DUI Litter Bridage! Help Redd Up Pennsylvania: Drill Marcellus Shale.

Robby Astrove works with Concrete Jungle, a fruit-foraging organization in Atlanta that in 2009 began building a database of untended fruit and nut trees on commercial and public land. The group donates most of the food to agencies that feed the hungry.

Although Mr. Astrove and his colleagues have harvested abandoned community gardens and he has planted pear and fig trees on empty commercial property, the organization cautions volunteers against trespassing and does not pick fruit on foreclosed properties.

Still, he thinks it is a great idea, especially for cities like Atlanta, where one in 50 homes is in foreclosure. Already, he said, there is an underground network among the homeless who work the gardens and trees around vacant homes, he said.

“It’s a perfect storm of vacant properties and people who need a quality food source and an unused resource,” Mr. Astrove said.

Feral Atlanta is ripe for the picking. I'd expect to read about such urban innovation in Detroit or Oakland, California, but Atlanta? Take Texas out of the equation and you'll find a Sun Belt that has lost its mojo.

Atlanta is another real estate boomtown that the current financial crisis is pummeling. Suburbia is getting whacked. What is left is a neglected core that will take decades to revitalize. Worse is the blind belief that the regional economy will return to normal and the South will rise again, again. The same hubris still plagues some Rust Belt cities, usually those that didn't experience the "Magic of Failure".

The future would seem to be in Greenville, SC and Chattanooga, TN. These Sun Belt brownfields are lean and mean, not sprawled into oblivion. In many ways, urban Appalachia looks like the place to be until the macroeconomic shock.

Mr. McClendon said his company could not have found oil in a better place. There is abundant water available — something Chesapeake needs for the hydraulic fracturing methods it uses to extract oil and gas from shale — and the topography of the area is easier to work with than what is found in Pennsylvania or West Virginia.

And, he said, there is a large and willing local work force that his company intends to draw upon.

“We're in a part of Ohio which, frankly, is ground zero for what used to be known as the manufacturing belt of America and unfortunately in the last 30 years has been the Rust Belt,” Mr. McClendon told analysts on July 29. “But we think that our activity can help rejuvenate this area and we're actually quite pleased with the quality of the work force, the size of the work force and we think, of course, there's great transportation alternatives here, and we're pretty close to the Ohio River. So if we need to barge out some oil, we can do that.”

I haven't read anything about water availability limiting fracking in Texas or North Dakota. Does it add to the cost of the product? I buy Chesapeake Energy mentioning the abundance of water as an important consideration. The dirty little secret is that Eastern Ohio is located in a more liberal watershed regime, one that is much more industry friendly.

While recreating in the Laurel Highlands, I meditated on the water issue. My father-in-law has an issue of Pittsburgh Magazine on his coffee table. Inside is a piece about the Marcellus Shale:

Bobby Vagt, president of the Heinz Endowments, views the Marcellus debate from two perspectives. Before joining the $1.4 billion regional foundation in 2008, he spent nearly 20 years as an executive in the oil- and gas-exploration industry. He believes that the sheer size of the resource, along with the widespread use of fracking, makes its impact dramatically different than other energy finds.

“Assuming the shale is developed, people will be drilling here for 25 years,” he notes. “The whole nature of the business has been changed. You’re here for the long term, so your relationship with people and suppliers and governments is important. The question now is not discovering the resource; it’s how cheaply and effectively you can drill a well. That has to be tempered with a focus on the environment.”

In some cases, Vagt says, environmental-protection and cost efficiencies will converge. He cites the example of on-site treatment of wastewater, which can save more than $330,000 per well and millions of gallons of water. But he cautions that negotiations on those solutions must start now.

Vagt's comments sparked an idea about taxes. Taxes can be used to encourage innovation as well as less resource consumption. Heavily tax the water so industry will use less of it. The same goes for waste water. Anyone out there reading this dabble in environmental economics? I don't know how much water usage is already taxed. I anticipate a jurisdictional problem. Watersheds don't mind our silly borders. Just the same, I think shale money could inform a healthier hydrology.

Nearly every stage of energy production requires water: from oil drilling, to coal mining, to power plant generation. And in general, many potential liquid fuel replacements require more water during production than conventional gasoline. For example, liquid fuel production from coal uses more water than conventional gasoline production on an energy-equivalent basis. Gasoline produced from enhanced oil recovery uses 55X more water than gasoline produced from standard drilling methods. At the far end of the water-intensity spectrum, corn ethanol production uses more than 39,000X more water than gasoline produced from standard drilling methods. And soy ethanol production requires 3.8X more water than corn ethanol production, 149,000X more water than gasoline produced from standard drilling methods.

What about the current “it” fuel of energy companies? Shale natural gas requires significant quantities of water – typically on the order of 100,000 barrels for a high-volume hydraulic fracturing. However, while shale production is water intensive, at 1 gallon of water per million BTU produced, it is relatively low in comparison to other energy production mechanisms.

The Rust Belt has ample water supply and raw resources for energy. It is also near major population centers. The icing on the cake is the abundant talent production, a legacy dividend. All are reasons to be bullish on Pittsburgh as a global energy player.

Residents in the hamlet of Limestone and the town of Carrollton will likely see large trucks hauling water from the community in upcoming days, weeks and months.

The trucks will haul the water for a Marcellus Shale operation in Pennsylvania, announced town officials at Wednesday’s board meeting.

Dave Frederick, town supervisor, said trucks from Triana Energy LLC, which is currently drilling in Mansfield, Pa., arrived in the community this week to purchase water.

The company had approached the community last year to set up a contract for the purchase of 100,000 gallons of water a day to be used for its drilling operation in Tioga County, located over 100 miles away.

Mr. Frederick said the company will pay $12 per 1,000 gallons of water, or $1,200 per day. He said the Triana trucks are filling up at a hydrant near the sewage plant on Railroad Avenue. Company officials also hope to purchase 120,000 gallons of water a day, slightly more than the original request.

Mansfield, PA is part of the massive (and well-protected) Chesapeake Bay watershed. Limestone, NY looks to be across a divide and part of the Allegheny River basin. The Pittsburgh watershed is less restrictive and more appealing for drilling activity.

The Rust Belt is dead! Long live the Rust Belt! Despite a deluge of positive press over the last few years, Pittsburgh's lousy reputation remains stubbornly in place. The latest reinforcement of the mesofacts:

The future of manufacturing in America may look completely different from the way you imagine it. As President Obama toured the country earlier this year, sharing his vision for bringing back high-paying manufacturing jobs to America, one might think the same manufacturing jobs that were sent offshore to low-cost destinations such as China, would soon be returning to places like Pittsburgh, Cleveland, and Detroit.

Instead, the new manufacturing hubs may be places like San Francisco, Raleigh-Durham, Austin and New York — vibrant tech hubs where young, creative individuals have access to cutting-edge technologies in fields ranging from robotics to nanotechnology. With new 3D printing technologies on the way, it may soon be possible to print anything you can imagine. As a result, the manufacturing companies of the future are more likely to be virtual, just-in-time collectives quickly assembled to plan, create and manufacture a product for a very specific market niche. In other words, say “good-bye” to the huge conglomerates and industrial titans.

Pittsburgh is a "vibrant tech [hub] where young, creative individuals have access to cutting-edge technologies in fields ranging from robotics to nanotechnology." In fact, Pittsburgh is a leader in such things. You might say the region wrote the book on the new wave of manufacturing.

Someone writing for the Washington Post should know better. However, journalists rely heavily upon geographic stereotypes and clichés when crafting a story. The mountain of revitalization just got that much steeper and higher.

Thursday, August 11, 2011

A few years ago, I read an article in The Economist (sorry, I haven't been able to find it) that contained a graphic detailing the cost of international human smuggling to certain destinations in the United States. I used that data in a college-level geography course I was teaching at a local community college. I asked the students to explain the variance in cost. One border crossing should be as good as any other one. Why can smugglers charge more to go from Mexico to Phoenix as opposed to delivering the undocumented to Nogales?

Students struggled to model the migration. The lesson complicates rational choice theory. Moving from Mexico to the United States is easy enough to understand. The exact destination within the US is another story.

The price for going from China to New York City stands out. I recall it being $10k. Why so dear? Certainly, there are much cheaper alternatives. The rub is demand. NYC is the place to be:

“Everybody wants to come to New York because New York is the starting point for going global,” said Xue Ya, president of the China Center, a business and cultural organization that was the first tenant to sign a lease at 1 World Trade Center, where it will occupy six floors. Once established in New York, Mrs. Xue said, “you are a player.”

Chinese are paying through the nose to be a player. The thinking that informs this migration blows a big hole in Richard Florida's Creative Class theory. Tolerance doesn't matter. The motivation to be in New York isn't dependent on whether or not there is a welcoming committee. Talent will put up with a lot of inconvenience and outright hostility to be in a place that helps them extend their creative (and earning) potential.

Network migration does a better job of mapping illegal cross border relocation. You either go where you know or where everyone else you know is going. Tolerance be damned.

Over the past week or so, I've taken issue with public comments from Pennsylvania Lieutenant Governor Jim Cawley (here and here). Cawley is trying to beat back proponents of a greater tax for drilling in the Marcellus Shale. He makes a lousy case, demonstrating a poor grasp of economic development issues. Via Pipeline, the Council on Foreign Relations (CFR) offers a similar critique:

That argument would be undermined if a severance tax threatened to crush the industry. Indeed that is what Cawley has claimed: his op-ed suggests that gas drillers would flee the state if a severance tax were imposed. But the economics of don’t add up. The Marcellus shale is relatively cheap to produce: the recent MIT Future of Gas study, for example, shows breakeven gas prices that are much lower than for any other shale play. A modest severance tax would still leave the Marcellus as the place to be. To be fair, if natural gas prices crashed, it’s plausible that an excessive severance tax could deter production at the margin. But, assuming that gas can’t stay super-cheap forever, that’s not necessarily bad: rational resource management says that you should produce more when prices are high and less when they’re low.

The CFR analyst is describing a unique attribute of the Marcellus: Relatively low cost of production. That means that Pennsylvania could levy a higher tax than other states with significant shale gas plays and still be economically attractive for drilling. I won't mince words. Cawley is lying in an attempt to keep taxes as low as possible. He is defending corporate interests instead of Pennsylvania's.

Cawley is ideologically opposed to tax increases. Yet he is incapable of rationally supporting his position. The debate shouldn't be about how little to tax drilling. My concern is how the increase in revenue will be used. Ideally, Pennsylvania invests in more economic development. In any state, energy jobs are a small piece of the overall picture. Job creation in other sectors would be most welcome during a time of stubbornly high unemployment.

I have in mind research and development. Could Pennsylvania become an innovation leader for safer and more environmentally friendly hydrofracking? Universities could attract state, federal, and industry funding. Talent emerging from such a program would be in demand worldwide.

To feed its energy demands, the United States is looking for energy in increasingly far-flung environments such as: Ultra-deep offshore oil wells, the Arctic, shale rock formations 20,000 feet underground. The risks involved are often greater, but the industry lacks a set of “best practices” for these new frontiers of energy exploration.

That's a need that researchers at the University of Texas and the Massachusetts Institute of Technology hope to fill. Scientists at both colleges are teaming up to create some guidelines for industry. Their focus would range from guiding principles to government policies to the engineering needs required to reduce environmental impact.

Pennsylvania should be a partner in this. Unfortunately, Cawley has neither the vision nor the leadership skills to get his state in the game. He'd rather bang the anti-tax drum and draw lines in the sand. Thanks to his ridiculous antics, PA residents are so much the poorer.